Tokio Marine HCC’s Julian Goodall considers the snappily-named clause developed to iron out liability issues in construction.
Imagine drinking your relaxing, morning coffee and then suddenly noticing that cracks are starting to appear in your living room wall that you share with your neighbour. You remember that the family next door is having building work carried out on their property, which is the likely cause of the intensifying cracks. So, what happens next?
Damage like this should be straightforward to sort out. If the neighbour’s builder was negligent, their own Public Liability insurance should cover the cost. The problems arise when it’s not possible to prove that the contractor was negligent, and the employer has a liability that is not insured - as in the court case Gold v Patman & Fotheringham Ltd 1958.
There’s a gap in cover that can lead to significant costs being borne by an uninsured property owner, who may have been unaware that such a liability could arise. JCT 21.2.1 insurance (which provides covers for the nuisance liability that may attach to the employer) was developed to fill that gap.
Who takes out the cover?
The contractor takes out the cover as part of their contract – even though it will protect the employer, not the contractor, in the event of a claim. The name ‘JCT 21.2.1’ refers to the clause in JCT contracts that requires the contractor to take out this insurance. It’s sometimes called ‘JCT 6.5.1’ as the numbering of the clause has changed.
The architect or legal advisors involved in the project will usually recommend that this cover is in place. It’s important to explain the reason for the cover to the policyholder beforehand as this will ensure there is no misunderstanding in the event of a claim – especially as these incidents can be quite sensitive, due to it generally being a neighbour who claims.
How does the cover work?
In our unexpected case above, the wall could most likely be quickly restored. Although it is important to note that this insurance wasn’t designed to cover that kind of cosmetic repair.
But what if the wall has been weakened so much that it leads to a collapse? The resulting claim could easily add up to hundreds of thousands of pounds.
JCT 21.2.1 insurance covers claims that can become very expensive – claims where there has been damage caused by any of the following:
- Weakening or removal of support
- Lowering of ground water
… and the contractor hasn’t been negligent.
The policy follows the language of the JCT conditions and protects the owner of a property against a claim made by a third party (usually a neighbour) who has suffered damage to their property as a result of the contractor’s work.
What isn’t covered?
The intermediary or broker will need to explain to the policyholder that this cover only applies in the (quite narrow) conditions set out in the JCT clause. It won’t cover loss or damage:
- Caused by the contractor’s negligence or mistakes – this can be hard to prove, which is why 21.2.1 claims can take a long time to settle and require expert handling
- Caused by errors in the design of the work
- that could be foreseen as inevitable – that includes minor cosmetic repairs – as insurance isn’t designed to give protection for things that aren’t fortuitous.
Who should call the insurers, and when?
As soon as an employer or contractor becomes aware of an incident that could possibly result in a claim – even if it’s just a knock on the door from a neighbour – they should tell:
- The insurer who provides the 21.2.1 insurance
- The contractor, who’ll need to tell their Public Liability insurers
- The architect, project manager or any other professional involved, who’ll need to get in touch with their Professional Indemnity insurers.
TMHCC has been providing JCT 21.2.1 (or similar) insurance for many years and has recently seen a significant increase in demand for the cover, especially in London where homeowners are extending rather than moving. TMHCC has a team of specialist underwriters, experienced claims handlers, and access to construction experts who will assist in the event of a claim and guide the policyholder through the process.
Julian Goodall is underwriting director - liability at Tokio Marine HCC. This article is sponsor approved and not editorially independent.